Seller FHA Related Questions
Hi BiggerPocket community! I have my first offer on my first flip. The offer involves a buyer who want to use an FHA loan. Below are some questions I have regarding this offer and FHA loans...
1. The Seller agrees to buy the house "As-Is" but later in that same section it states...
"LENDER REQUIRED REPAIRS AND TREATMENTS: Unless otherwise agreed in writing, neither party is obligated to pay for lender required repairs, which includes treatment for wood destroying insects. If the parties do not agree to pay for the lender required repairs or treatments, this contract will terminate and the earnest money will be refunded to Buyer. If the cost of lender required repairs and treatments exceeds 5% of the Sales Price, Buyer may terminate this contract and the earnest money will be refunded to Buyer."
The house is an older home(1948) but it's had a complete makeover. I know this is standard contract language but I'm wondering if I should add additional language to reflect I have don't want to pay anything more.
2. FHA Appraisals - Are these typically standard to what I should expect for a conventional loan or are they more stringient.
3. The contract states "This contract is subject to Buyer obtaining Buyer Approval. If Buyer cannot obtain Buyer Approval, Buyer may give written notice to Seller within days after the effective date of this contract and this contract will terminate and the earnest money will be refunded to Buyer. If Buyer does not terminate the contract under this provision, the contract shall no longer". To me this is too long to wait, even though the contract states closing would be 12.21.2017.
FHA needs the house in working order with no health and safety repairs - The question is, are you paying for the appraisal and did yo get your offer price? If the house is a junker broken windows, leaky roof, peeling paint and no floor covering it won't go FHA. You'r Realtor should be able to take a look and have an idea if the property is acceptable.
How long have you been on title? FHA will not do a loan where the seller has been on title for 90 days or less from the time the seller gets put on title and the execution date of the purchase & sale agreement.
Between 91-180 days on title, it will be required to have 2 appraisals. One the buyer pays for and one the seller pays for. If you have been on title for 181 days or more, there is just 1 appraisal required and the loan is a standard FHA loan at that point.
If the PSA calls for pest treatments, then they will be required to be done. You can refuse to pay for these treatments, but the buyer would need to pay them or the purchase agreement would be terminated.
FHA appraisals are a bit more stringent compared to a conventional loan appraisal. However the items are not that major in difference and costs. If you have rehabbed the property, your most likely already good on any items that FHA would want to see versus the conventional loans.
All PSA have a time frame for the buyer to make loan application and get pre-approved, although that time frame is typically around 5 days. This time frame doesn't seem to long to me? I have attached a Washington State, standard MLS PSA verbiage for you to look at regarding this issue. I'm sure the PSA in your state are similar?
@Kevin Romines is FHA requiring two appraisals a new thing? I owned and sold a house to an FHA buyer, and my ownership was between 90-180 days. There was only one appraisal. Has this change happened in the past year?
Yes, the FHA now has a 6 month Flipper rule. If the home is selling for 100% or more of the price in which you purchased then a second appraisal is required and the FHA requires the seller to pay for those costs. This is required only if the home is resold within 6 months of the initial purchase.
Also, yes FHA is much stricter than a conventional loan. Your real estate agent should be able to guide you through the FHA regulations fairly easily. If you are selling by owner...good luck
Originally posted by @Ken D.:
FHA needs the house in working order with no health and safety repairs - The question is, are you paying for the appraisal and did yo get your offer price? If the house is a junker broken windows, leaky roof, peeling paint and no floor covering it won't go FHA. You'r Realtor should be able to take a look and have an idea if the property is acceptable.
@Ken D.: Here's the funny thing about that. They offered full price but turned around and appear to ask me to pay for their down payment in Section 12 of the contract. :)
12. SETTLEMENT AND OTHER EXPENSES:
A. The following expenses must be paid at or prior to closing:
(1) Expenses payable by Seller (Seller's Expenses):
(a) Releases of existing liens, including prepayment penalties and recording fees; release of Seller’s loan liability; tax statements or certificates; preparation of deed; one-half of escrow fee; and other expenses payable by Seller under this contract.
(b) Seller shall also pay an amount not to exceed $X,XXX.XX to be applied in the following order: Buyer's Expenses which Buyer is prohibited from paying by FHA, VA, Texas Veterans Land Board or other governmental loan programs, and then to other Buyer's Expenses as allowed by the lender.
Seller concessions are normal for FHA, they are negotiable.